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Does your business know its water risk?

 

The UK is an open economy, trading with over 180 countries worldwide. It is also the seventh largest importer. In 2013, the total value of the ‘stuff’ we imported was £420 billion – equivalent to 32% of the total UK GDP. So, it goes without saying, we are all, in some way or other, reliant on goods we import from other countries.

It takes water to make or grow the things we import so, given this reliance on imports, just how exposed are we to international water problems? How much of the stuff we buy could suddenly become unavailable because of water crises internationally? These are crucial questions for UK businesses and consumers, as well as for how the UK government and businesses engage in global water initiatives. We’ve just completed a study that answers these questions.

Examining water risk

In the study, we looked at broad categories of products that the UK imports (things like clothing, oil, machinery, food, appliances), and then at which countries we get those products from. Using WWF’s Water Risk Filter we worked out the extent to which there is a low, medium or high risk of the production of those goods being affected by issues of water scarcity, pollution, and regulation in the countries we get them from.

Orange tree in Andalucia, Southern Spain © Global Warming Images / WWF-CanonOrange tree in Andalucia, Southern Spain © Global Warming Images / WWF-Canon

Over 80% of imported goods are at medium risk

We found that over 80%, by value, of the products the UK imports have a medium level of water risk when risk is averaged across all sourcing countries, with the remainder having a low water risk. Of all the products we looked at, it is clothing that has the highest water risk. That doesn’t sound too bad does it? Nothing’s at high risk, right? But delve a little deeper and a different picture emerges. What this means in practice is that while some of the things we import are from areas of high water risk, we often also get the same products from areas of low water risk. On average then there is a medium level of risk. For example, our three biggest sources of domestic appliances are Turkey, China and Poland, which have high, medium and low water risks respectively.

So, typically the domestic appliances the UK imports are at medium water risk, but a significant proportion do still have high water risks. When we added up all the things we get from high risk countries we found that 6% by value of the UK’s imports come from high water risk countries.

Mud cracks, river bank, Shanxi, ChinaMud cracks, river bank, Shanxi, China

But does it even make sense to give a whole country the same water risk rating? Many countries contain several river basins and, particularly for large countries, there can be a wide variation in water risk within a single country. The north of China is much more water stressed than the south, for instance, so it makes a big difference where in China things are produced.

We know that the production of particular products, or the growing of particular crops, can be very localised within a country and could be produced in an area with much higher (or lower) water scarcity than the country average. Giving a country one average water risk value (to use the favourite joke of one of my statistics teachers) is a bit like having your feet in the oven and your head in the freezer but saying you’re OK because on average you’re at room temperature. The problem is that import/export statistics only tell us which country a given product comes from and not whereabouts within that country it is produced, so we’ve had to look at country averages, and on average we’ll be right.

To 10 exporters to the UK with significant areas of high water riskTo 10 exporters to the UK with significant areas of high water risk

Nevertheless, it’s useful to look at which countries have hotspots of high water risk i.e. countries where at least some areas have high water risks. When looked at in this way, about 40% by value of the UK’s imports come from countries that have hotspots of high water risk. Our largest trading partners with significant water risk hotspots being China, the US, Italy and Spain.

Getting to grips with water risk

So what does this all mean? Consumers in the UK probably won’t notice much change to the things we can buy because of water risks internationally (the cost of those things is another issue), but there’s a huge potential for disruption in the supply chain for individual companies that source from high water risk areas.

The impact of the current drought in California is a case in point. California produces 80% of the world’s almonds. Almond yields fell last year as a result of the prolonged drought, and its reputation as a thirsty crop has put growers in the firing line in the debate on water allocations. These trends are big risks for Californian farmers and the businesses that source from there but other countries, like Australia, are stepping up production to meet the demand and, while consumers might notice higher prices, the UK is not going to run out of almonds anytime soon.

The problem is that import and export statistics only tell us which country a given product comes from and not whereabouts within that country it is produced, so we’ve had to look at country averages, and on average we’ll be right.

Ultimately, companies need to get to grips with the water risks in their supply chains before it’s too late.

To find out more about water risk and how it affects businesses, download ‘From risk to resilience: Does your business know its water risk?’ (PDF)

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